Why Some Think Australia's Housing Market Is Due for a 2008 Moment
Insane. That's how Jonathan Tepper, chief executive officer at research firm Variant Perception, described Australia's housing sector in a word, painting the picture of a market that's strikingly similar to that of the U.S. prior to the financial crisis.
A local 60 Minutes segment that aired on Sunday titled "Home Groans" chronicled some of the eye-popping events in the nation's real estate market, with amateurs owning (and under water on) multiple homes with no tenants, interest-only loans increasing in prominence, price-to-income ratios at elevated levels, and home auctions attended by the community and captured for the small screen.
Much of the clip centers on the coal town of Moranbah, which the narrator deems to be a canary in the coal mine for the nation's housing market as a whole, and the financial and emotional plight of those who got caught up in the boom. According to an owner, the value of one property in the Queensland town has declined by roughly 80 percent.
Perhaps the juiciest tidbit, however, is a claim that John Hempton, a hedge fund manager at Bronte Capital and long-time Australian property bear, and Tepper—who's called housing busts in the U.S., Spain, and Ireland—put on Twitter:
Tepper later added that this offer came from a "major brand lender."
While most discussions of frothy housing markets focus on the low cost of credit (and central banks' role in that), the ability to access credit is arguably more important.
A borrower may be willing to take on a dangerous amount of leverage to be part of a seemingly can't-miss opportunity, but in the end, the bank still has the final say on whether to provide the funds.
Australia hasn't had a recession since the early 1990s, but it's tough to see the nation avoiding one in the event that Tepper's prophesied 30 percent to 50 percent crash in home values comes to pass.
Of course, investors have also been warning of an Australian housing bubble for almost as long.